Thursday, October 30, 2008

The Recession Is Coming, The Recession is Coming

Paul RevereIn honor of Paul Revere, a famous patriot from the U.S. revolution, I thought I’d shout out the words that we all knew would come sooner or later: The recession is coming. The last couple quarters have been weird in that we knew the economy was struggling, but it still grew nonetheless. In fact, Q2 recorded an annualized GDP growth of 2.8 percent, which is a good growth rate for an economy the size of the U.S. What was hidden in that growth was the fact that much of it was artificially created by the government stimulus measures. This time around, in Q3, we saw a 0.3 percent decline in the GDP, the biggest decline since the last recession, in 2001, according to the Wall Street Journal. The traditional measure of a recession is two consecutive quarters of decline in the GDP, and somehow I don’t see Q4 turning out much different than Q3, so shout it from the streets: The recession is coming.

Hopefully you got this message a long time ago and planned accordingly, but if not, you'd better get in gear. Recessions are times of financial hardship, especially the resulting layoffs. I wrote yesterday about how the increasing unemployment will take its toll on the housing market. But even more important than the toll it will take on the housing market is the toll it will take on people. As I’m writing this, I just received an alert from the Wall Street Journal announcing that American Express is laying off 10 percent of its workforce, or 7,000 people. Along with the layoff, American Express is halting management pay increases and issuing a hiring freeze. Every day I’m seeing more of these announcements, and they are only going to increase in frequency and severity. Even if you think your job security is rock solid, it would be a huge mistake not to think about Plan B at this point.

If you get laid off, how are you going to support your family? This is a question that requires some serious thought and action. Now might be a good time to update your resume, get that specialized training certificate you’ve always been meaning to get and make an effort to stay in touch with key contacts. Above all, though, you need to make sure you have a few months' worth of expenses saved up. Even for great candidates, finding a job in a recession is not easy and it is likely to take some time. It is important to make sure that your family's well-being is accounted for first and foremost, in case the job search takes a while. It is better to plan for the worst and not need it than to be unprepared.

As for your investment portfolio, things probably aren’t looking all that great right now. The good news about recessions is that they offer great buying opportunities for investors who have extra cash hanging around. This holds true for almost all types of investments. You can find cash-strapped investors who need to dump their assets for quick cash, investors who are scared out of their minds and just want out or any other number of scenarios. Deals abound right now, but investors must also make sure that they buy smart. There is a lot of risk in the various markets right now, and to ignore that could cost you a lot of money. Just because something appears to be a discount and therefore a great deal doesn’t mean it is. Use your brain and take extra time to evaluate the numbers.

1 comment:

Anonymous said...

Great advice. The U.S. economy has surely taken quite a hit over the past few months. With recession and the need for reform on the minds of a majority of Americans, I thought you might be interested in two non-partisan guides we’ve put together here at Public Agenda on the economy and taxes, spending and debt Feel free to check these out and get back to me with any questions. Thanks again for an informative piece!